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NAFTA - Chapter 11 - Investment

Cases Filed Against the Government of Canada

S.D. Myers Inc. v. Government of Canada

Claimant

S.D. Myers Inc. (“SDMI”) is a company incorporated in the State of Ohio in the United States. It is owned and controlled by members of the Myers family. It engages in, or arranges for, the transportation, processing, and disposal of polychlorinated biphenyl (“PCB”) waste. The processing takes place at its treatment facility in Tallmadge, Ohio. Members of the Myers family also own and control a company incorporated in Canada, S.D. Myers (Canada) Inc. (“Myers Canada”) through which they obtain PCB waste in Canada for treatment by SDMI in its facility in the United States.

Articles

1102 (National Treatment)

1105 (Minimum Standard of Treatment)

1106 (Performance Requirements)

1110 (Expropriation)

Damages claimed

$53 million USD.

Arbitration Rules

UNCITRAL

Summary

Procedural history

On July 21, 1998, SDMI submitted a Notice of Intent to Submit a Claim to Arbitration, and on October 30, 1998, SDMI served a Notice of Arbitration under NAFTA Chapter 11. The Tribunal issued a partial award on November 13, 2000 and a second partial award on October 21, 2002. The tribunal issued its final award on costs on December 30, 2002.

Factual overview and nature of the claim

PCB is a synthetic chemical that was used in electrical equipment. It is a highly toxic substance that biodegrades slowly. Since the early 1970s, PCBs have been the subject of increasingly strict international regulation. In 1990 Canada prohibited the export of PCB waste except for any PCB waste to the United States with the prior consent of the U.S. Environmental Protection Agency ("EPA.").

In October 1995, without notifying Canada, the EPA reversed its long-standing closed-border policy respecting PCB waste and announced that it would allow imports into the United States by discretionary exemptions under its Toxic Substances Control Act. The first would be granted only to SDMI and granted shortly thereafter to other companies disposing of PCB waste in the United States. Following the EPA’s announcement, the Minister of the Environment issued the PCB Waste Export Interim Order which prohibited the export of PCB waste to the United States except from U.S. agencies operating in Canada, with the consent of the EPA. In 1997, an amendment to the PCB Waste Export Regulations reopened the border again to the movement of PCB waste. Later that year, a judicial decision in the United States closed the border again to PCB waste.

According to SDMI, Canada’s export ban on PCB waste between 1995 and 1997 completely undermined its ability to do business in Canada. It claimed that Canada’s motive behind the export ban was not concern for human and environmental health, but the protection of Canadian PCB remediation businesses which would not have been able to compete with its business model. SDMI claimed that the export ban breached Canada’s obligations under the NAFTA.

The Award

In its first partial award of November 13, 2000, the Tribunal rejected Canada’s objection that SDMI did not own or control an investment in Canada and as such did not qualify as an “investor” for the purposes of NAFTA Chapter 11. It found that the Myers family’s control over both SDMI and Myers Canada was sufficient to establish that SDMI was an “investor” and that Myers Canada was an “investment”.

The Tribunal, by a majority, dismissed SDMI’s claim under NAFTA Article 1106. The majority found that the export ban did not impose any requirement, as defined in NAFTA Article 1106. Professor Schwartz issued a separate opinion and considered that the effect of the export ban was to require SDMI to undertake all of its operations in Canada contrary to NAFTA Article 1106(1)(c).

The Tribunal also dismissed SDMI’s claim under NAFTA Article 1110. It observed that the export ban was a temporary measure that did not amount to a lasting removal of SDMI’s investment in Canada. It merely postponed SDMI’s venture into the Canadian market for approximately 18 months.

The Tribunal granted SDMI’s claims under NAFTA Articles 1102 and 1105. It found that the export ban effectively discriminated against U.S. PCB waste disposal companies, in favour of Canadian PCB waste disposal companies, thereby breaching NAFTA’s national treatment obligation. The Tribunal’s decision was based on its view that the primary purpose of the ban was to protect the interests of the Canadian waste disposal industry and not environmental protection. The Tribunal, by a majority, also found that, on the facts of the case, the breach of Article 1102 essentially established a breach of the minimum standard of treatment guaranteed by Article 1105. Mr. Chiasson disagreed and found that SDMI had not established a breach of Article 1105.

In its second partial award of October 21, 2002, the Tribunal found that compensation should be awarded to SDMI for the overall economic losses it sustained as a proximate result of Canada’s measure, whether they were sustained in Canada or in the U.S. The Tribunal awarded damages to SDMI in the amount of $6,050,000 CAD plus interest. It also awarded costs to SDMI in the amount of $850,000 CAD plus interest.

Review by the Federal Court

Canada sought judicial review of the Tribunal’s award before the Federal Court of Canada on the ground that the award exceeded the scope of the submission to arbitration and contravened the public policy of Canada. The Federal Court of Canada dismissed Canada’s application on January 13, 2004.

Status

Award decided.

Legal Documents (all documents are in pdf)

This case was governed by the arbitral rules of the United Nations Commission on International Trade Law (UNCITRAL). Additional documents related to this case can be viewed at the UNCITRAL Transparency Registry.

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ARCHIVED - Separate Opinion by Dr. Bryan Schwartz (PDF Document - 421 KB). Under the Articles 31 and 32 of the UNCITRAL Arbitration Rules there can only be one "award" of the Tribunal on any particular issue. A separate opinion is technically not "part of" or "annexed to" an award, and it has no status other than that of being literally a "separate opinion".

ARCHIVED - Separate Opinion by Dr. Bryan Schwartz (PDF Document - 271 KB). Under the Articles 31 and 32 of the UNCITRAL Arbitration Rules there can only be one "award" of the Tribunal on any particular issue. A separate opinion is technically not "part of" or "annexed to" an award, and it has no status other than that of being literally a "separate opinion".